Leavs-of-Absence - United Benefit Advisors

This Employer Webinar Series program
is presented by Spencer Fane Britt & Browne LLP
in conjunction with United Benefit Advisors
This Employer Webinar Series program
is presented by Spencer Fane Britt & Browne LLP
in conjunction with United Benefit Advisors
Kansas City = Omaha = Overland Park
St. Louis = Jefferson City
www.spencerfane.com
www.ubabenefits.com
Benefits Aspects of Employee
Leaves of Absence
Robert A Browning, Esq.
and
David Wing, Esq.
Presenters
Rob Browning
[email protected]
913-327-5192
Dave Wing
[email protected]
913-327-5143
3
Program Overview

Leaves of Absence



Effect of both types of leave on:






Federal FMLA Leave
Non-FMLA Leave (including military leave)
Group health plans
Cafeteria plans
Other welfare plans and programs
Retirement plans
COBRA and HIPAA issues
USERRA and ADA issues
4
Leaves of Absence


So what’s the big deal?
Case study:

Plan document, employee handbook, HR
Department

Each has a different policy for continuation
of benefits during a leave of absence

Which leave policy wins?
Answer: the reinsurer’s policy
5
Federal FMLA Leave

General legal framework of FMLA leave:

Eligible private employer: 50 or more
employees

Eligible employees:



Must have worked for employer for at least 12
months
Must have worked at least 1250 hours in 12
months prior to leave
Must work at location with at least 50 employees
w/in 75 miles
6
Federal FMLA Leave

General legal framework

Eligible employees are entitled to 12 weeks
(unpaid) leave in an employer-designated 12month period for:




Serious health condition of the employee or the
employee’s spouse, child or parent;
Birth or adoption of employee’s child; or
Qualifying military-related exigency
Eligible employees are entitled to 26 weeks
leave to care for seriously ill military member
who is employee’s child, parent or next of kin
7
Federal FMLA Leave

General legal framework

Serious Health Condition


Illness, injury, impairment or physical or
mental disability that involves inpatient care
or continuing treatment by a health care
provider
Absent complications or inpatient care,
following are usually not serious health
conditions—cosmetic treatments, cold, flu,
ear aches, upset stomach, headaches
8
Federal FMLA Leave

General legal framework

Employer may require or employee may
elect to substitute available paid leave for
unpaid leave



PTO
Vacation
Sick
9
Federal FMLA Leave

General legal framework

Employer must designate for all
employees an FMLA year




Calendar
Any fixed 12 months
12 months looking forward
Rolling 12 months looking backward
10
FMLA Leave

Application to group health plans

Employer must maintain employee’s group
health plan coverage on same conditions as
if employee had been continuously
employed during the FMLA leave



A group health plan includes a separate dental,
vision or prescription drug plan
A group health plan includes HRAs, but generally
does not include HSAs
Must offer same type of coverage (single vs.
family) during leave as employee had prior
to leave
11
FMLA Leave and Health Plans

If employer provides a new health plan or new
benefits, or changes benefits in a plan during
the leave, the employee is entitled to the
new/changed plan and benefits

Example - if dental care is added to the Plan,
then the employee must be given the same
opportunity as other employees to receive the
same dental care benefit

Example - changes in premiums, deductibles
and any other benefit changes also apply
12
FMLA Leave and Health Plans

Notice of any opportunity to change
plans or benefits must be given to any
employee on FMLA leave


Notice of the opportunity to add family
members must also be given
In other words, don’t forget employees
on FMLA at open enrollment or any
special enrollment
13
FMLA Leave and Health Plans

An employee on FMLA leave may
choose not to keep his/her group
health plan coverage during the FMLA
leave

However, the employee must be
reinstated to the plan (upon returning to
work) on the same terms of coverage that
were in place prior to the leave without
any waiting period or new pre-existing
condition limitations
14
FMLA Leave and Health Plans

The employer’s obligation to maintain
health benefits ceases when:

The employee informs the employer
he/she will not return from the leave of
absence; or

The employee fails to return from the
leave of absence; or

The employee continues on non-FMLA
leave of absence after the FMLA leave
expires
15
FMLA Leave and Health Plans

Payment of group health plan
premiums:

The employee is responsible for his/her
regular share of the health premiums


Payment will generally be with after-tax
dollars, unless employee is on paid-leave
(and can continue to make pre-tax
contributions through a cafeteria plan)
If premiums rise or fall, the employee
pays the new rate
16
FMLA Leave and Health Plans

How does the employer collect
premiums?

If leave is paid leave, the employer collects the
premium by the method it normally uses for any
paid leave (i.e., by payroll deduction)

If leave is unpaid, the employer may require that
payment either be made to the employer or to the
insurance carrier

May not charge an administrative premium
(unlike COBRA)
17
FMLA Leave and Health Plans

For unpaid leave, employees may pay
premiums in any of the following ways:

At the same time the premium would have
been deducted from payroll

On the same due dates as COBRA payments;

In advance, pursuant to 125 plan, if EE elects

By the same method as non-FMLA unpaid
leave, so long as the method does not require
prepayment of premiums

By method agreed to by employee/employer
18
FMLA Leave and Health Plans

Two important rules regarding payments:

The employer may not impose greater
requirements on the FMLA employee than it
imposes on non-FMLA employees (who are
on leave without pay)

The employer must provide advance written
notice of the payment conditions

Can satisfy with DOL Form WH-381 (Notice of
Eligibility)
19
FMLA Leave and Health Plans

What if employee fails to pay premiums?




Coverage may be dropped if payment is
more than 30 days late
Employer must give 15 days advance notice
that coverage will terminate
Example: Premium due May 1; employer
gives notice by May 15 that coverage will
cease on May 31 unless premium is
received by that date
Same example: if notice not provided until
May 20, coverage must last until June 4
20
FMLA Leave and Health Plans

What if coverage lapses due to non-payment?
 The employee remains entitled to
restoration of coverage when the employee
returns to work

No waiting periods

No new pre-existing condition limitations

Employee may elect COBRA at the end of
the leave (if he/she does not return to
work)
21
FMLA Leave and Health Plans

What if coverage lapses because the employee
fails to return to work?

Employer may recover the employer’s share of
premiums if employee fails to return to work (for at
least 30 days) following the FMLA leave unless


The serious health condition continues (and the employer
may request medical certification at the employee’s cost)
Circumstances beyond the employee’s control:


Examples are limited and fairly extreme, such as parent must
stay home with seriously ill child (but not healthy child)
Employer may not recover if leave is paid leave
(including worker’s compensation leave)
22
FMLA and Cafeteria Plans


Paid leave - premiums simply continue
and are deducted from pay
Unpaid leave:

Employees are allowed to revoke
coverage; or

Employer may require coverage to
continue, but must allow employee to
discontinue payment

Employer pays the premium and recovers
employee’s share upon return to work
23
FMLA and Cafeteria Plans (cont.)

Unpaid leave (continued)

If employee elects to continue coverage,
the employer may offer (not mandate) the
following options (which must be as
favorable as non-FMLA options):



Pre-pay (reduce pre-leave checks) with pre-tax $
Pay as you go (generally after-tax $)
Catch-up options - employer advances payment
and employee repays with salary reduction
contributions upon return to work (generally pretax $)
24
FMLA and Other Welfare Plans

Voluntary benefits (such as AFLAC polices for
cancer, ICU, etc.) are not group health plans, but
only if they meet the non-ERISA rules:




No employer contributions (there is uncertainty
whether employee pre-tax contributions under
cafeteria plan are treated as employer contributions
for purposes of this rule)
No employer involvement other than collecting
premiums (i.e., no “endorsement” by employer)
Employee participation is completely voluntary
If above requirements are not met, program is
subject to the FMLA group health plan rules
25
FMLA and Other Welfare Plans

Group life, AD&D, long-term disablity:

If employer pays the premiums,
continued coverage is not required (but
can’t treat worse than non-FMLAEEs)

If employee pays the premiums:


If unpaid leave, employee must be given the
opportunity to pay premiums if employer’s
policies/practices permit employees on other
types of unpaid leave to continue coverage
If paid leave, presumption is that employee
payments will continue (via payroll deduction)
26
FMLA and Other Welfare Plans

Group life, AD&D and long-term disability
(cont.):

If employee drops coverage:



Employee is entitled to resume participation (after
leave) at same level as before the leave
No requalification (such as medical exam) or
waiting period
DOL says that the employer may need to
continue the premium payments if the insurer will
not allow the employee to immediately resume
coverage at same level
27
FMLA and Other Benefits

Vacation/Sick Pay/PTO:

No requirement that employee accrue
PTO during a FMLA leave of absence
(but can’t treat those on FMLA leave
worse than non-FMLA leave)

Employer may not forfeit PTO time
accrued prior to the leave of absence
28
FMLA and Bonuses

FMLA employee need not be paid a bonus
that is based on an “achievement of a
specified goal” standard that was not met by
the employee, such as:




hours worked;
products sold/produced; or
attendance
If bonus is paid to employee on non-FMLA
leave, it must be paid to FMLA employee

This includes using paid vacation for non-FMLA
leave
29
Non-FMLA Leave and Benefits

Generally, the treatment of benefits
during a non-FMLA leave of absence
is governed almost exclusively by the
employer’s policies, plan documents
and procedures

One exception: some state workers’
compensation laws mandate health
coverage during leave
30
Non-FMLA Leave

Policies, Plan Documents and
Procedures

Clarity and consistency are key

Back to the example:



Employee handbook – says benefits last
forever
Summary Plan Description – allows for
benefits for FMLA leave only
HR Department – says benefits are tied to
LTD eligibility
31
Documents, Policies, Procedures

Are employees on leave of absence
eligible for benefits?

Or must they be “actively at work”?

Any distinction between paid/unpaid leave?

Does eligibility change from plan to plan
(e.g., health plans vs. life insurance vs.
disability plan)?

Vacation/bonus programs should also be
addressed
32
Documents, Policies and
Procedures

Are premiums the same, and who is
responsible for paying the premiums?
 Does the employee receive the employer’s
share?

When and how long must premiums be paid?
How long does coverage continue?
When does coverage lapse?



If coverage lapses, what are employee’s rights
when they return to work?
33
Documents, Policies and
Procedures

Most importantly, is the policy or
procedure (or plan document)
consistent with the insurance contract
or with the documents furnished to the
reinsurer (in the case of self-funded
benefits)?

You don’t want to promise a benefit that
your insurer won’t provide (or that your
reinsurer won’t pay for), particularly in the
area of long-term disability benefits
34
FMLA Leave and COBRA

The employer must offer COBRA
coverage (at the end of the leave) if:

The employee (or spouse or dependent)
is covered by a group health plan the day
prior to the leave of absence; and

The employee does not return to work at
the end of the leave of absence; and

The employee would, in the absence of
COBRA, lose coverage within 18 mos.
35
FMLA Leave and COBRA

What if the employee declines health
coverage during the FMLA leave, or
fails to pay his/her portion of the
premium?

COBRA continuation coverage must be offered

COBRA coverage starts on the last day of the
FMLA leave of absence (or, if earlier, the date
the employee clearly informs the employer that
he/she is not returning to work)
36
Non-FMLA Leave and COBRA

Basic rule is that the “qualifying event” occurs at the beginning of
the leave (i.e., upon the “reduction in hours”), unless:



Plan and policies are key



Coverage continues for at least 18 months (this is very rare); or
Plan provides that the qualifying event is when coverage ends
Plan may treat the beginning of the leave of absence as the qualifying
event (this is the default if the plan is silent); or
Plan may treat the employee’s termination of employment as the
qualifying event (if coverage continues unchanged until then)
Key is that employer must specify this date in the plan documents
and apply COBRA consistent with the terms of the plan


Don’t offer COBRA if the plan/policies are clear that coverage will
continue unchanged during leave
Do offer COBRA if coverage changes during the leave
37
Leaves of Absence and HIPAA

How do HIPAA privacy rules apply to
medical certifications and health
information obtained in connection with
a leave of absence?


The “covered entity” is the physician, not
the employer
The physician, therefore, will be releasing
“protected health information” and must
comply with HIPAA authorization rules
and other HIPAA privacy rules.
38
Leaves of Absence and HIPAA




The health information is not PHI after it reaches
the employer, and is therefore not subject to
HIPAA privacy laws at that time
But beware that such health information may be
subject to state privacy laws and ADA
confidentiality
In addition, a leave of absence may trigger a
group health plan’s obligation to issue a certificate
of creditable coverage (if coverage is lost as a
result of the leave of absence)
Coverage gaps during FMLA leave don’t count as
coverage gap for purposes of HIPAA
39
Leaves and Retirement Plans


401(k) deferrals and matching contributions
continue as long as compensation continues
(unless employee elects to cease deferrals)
“Last day” employment requirement to receive
an allocation is satisfied if employee is on a
leave of absence (whether FMLA or not)
 Unpaid leave does not count towards the
1000 hour requirement for a Year of Service
or the 500 hour requirement to avoid a Break
in Service
40
Leaves and Retirement Plans

Distributions: a leave of absence is not a “severance
from employment,” and therefore not a distribution event


However, event causing leave of absence may be a
qualifying hardship distribution event
Plan loans: plan may permit suspension of payments for
up to one year*, but interest accrues, and the loan must
still be repaid within the maximum (5-yr) loan period


May re-amortize loan when employee returns, or
employee may make balloon payment at maturity date of
the loan
* = Special rule for military leave (addressed in later slide)
41
Leaves and Retirement Plans



Hour of Service: includes any paid leave
(up to 501 hours, excluding workers’
comp or insured disability leave, but does
not include unpaid leave, even if FMLA
leave
Break in Service: is not triggered by
FMLA leave
Employee on FMLA leave is immediately
eligible to re-commence participation
following the leave
42
Leaves and Retirement Plans


Employees on maternity/paternity
leave are credited with up to 501 hours
of leave time so as not to incur a oneyear Break in Service.
However, the maternity/paternity leave
time is not counted as an hour of
service for other purposes, such as
vesting
43
Military Leave under USERRA

Uniformed Services Employment and
Reemployment Rights Act of 1994 (USERRA):


Governs employee’s rights when returning to work
after serving in the uniformed services for < 5 years
Employees returning to work are to be:




Promptly reemployed
Reinstated with all rights and benefits that they would
have earned without the break in employment
Protected from discrimination
Employer must provide health benefits during first 24
months of military leave, but if leave is longer than
30 days, employee may be required to pay up to
102% of premiums
44
USERRA and Benefit Rights


Must restore the benefits the service
member participated in at the time the
military leave began, and must offer
any benefits that began during the
military leave for which the service
member would have been eligible.
Must treat a re-employed member as
not having incurred a break in service
with the employer maintaining the plan.
45
USERRA and Qualified Plans



Rights are governed by Code Section 414(u)
(as amended by 2008 “HEART” Act)
401(k) plan participants may make additional
“make-up” deferrals (and receive related
matching contributions) for up to the lesser of
3 times the period of military service or 5
years
Plan loan repayment period may be extended
by up to the period of military service
46
USERRA and Qualified Plans



Service in the military counts as service
under the plan (for purposes of vesting)
Plan must count military service for
purposes of benefit accrual if EE returns;
“may” count service if EE does not return
“Differential wage payments” are 415
compensation, and may (but are not
required to be) treated as “Plan
Compensation” for purposes of accruals
and/or allocations
47
USERRA and Qualified Plans

Persons on military leave for at least
30 days are treated as having a
“severance from employment” for
purposes of withdrawal restrictions, but
plan is not required to allow a
distribution

If plan allows a distribution on account of the
“deemed” severance from employment, the
individual may not make salary deferrals for
at least six months after the distribution
48
Americans with Disabilities Act

Requires covered employers

Not to discriminate against applicants or
employees with disabilities

To provide reasonable accommodation to
applicants and employees with
disabilities
49
Americans with Disabilities Act

Disability

Physical or mental impairment that
substantially limits one or more of the
major life activities of such individual

A record of such an impairment

Being regarded as having such an
impairment
50
Americans with Disabilities Act

ADA Leave

Reasonable accommodation of last resort

Explore other accommodations to keep
employee working first

Leave can be ADA reasonable
accommodation


Following expiration of FMLA
For employees not eligible for FMLA
51
Americans with Disabilities Act

ADA Leave Benefits

Legal requirement is non-discrimination

Employer cannot treat employee on ADA
leave worse than an employee on non-ADA
leave
52
Workers Compensation Leave


Benefits continuation determined by
state law
General rule is non-discrimination

Employer must provide same benefits as
for comparable non-workers
compensation leave
53
This Employer Webinar Series program
is presented by Spencer Fane Britt & Browne LLP
in conjunction with United Benefit Advisors
= Omaha = Overland Park
Kansas
= Jefferson
St.
LouisCity
City
www.spencerfane.com
www.ubabenefits.com
54